Reserve Bank of India conducts $10 bn forex swap to inject liquidity | Current Affairs | Vision IAS

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Reserve Bank of India conducts $10 bn forex swap to inject liquidity

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RBI's Dollar-Rupee Swap Auction

The Reserve Bank of India (RBI) conducted a $10 billion US dollar-rupee buy-sell swap auction for three years, attracting bids worth $16.23 billion. This reflects strong demand amid a liquidity deficit in the banking system. The auction follows a previous $5 billion infusion via a six-month swap on January 31.

Key Auction Details

  • 161 out of 244 bids were accepted, totaling $10.06 billion for a three-year tenure.
  • The cut-off premium was set at ₹6.55, lower than market expectations, with an average premium of ₹6.73.
  • Currency swaps involve the RBI buying dollars from banks in exchange for rupees, effectively increasing rupee liquidity.

Market Observations

  • Strong demand was noted from the corporate sector, with banks seeking higher premiums.
  • Many banks bid conservatively due to RBI's rate cut cycle and no capital charge considerations.

Liquidity and Currency Implications

  • The net liquidity deficit in the banking system stood at ₹1.81 trillion as of Thursday, persisting for eleven weeks.
  • The rupee depreciated by 31 paise against the dollar due to foreign investor equity sales and trade war concerns.
  • The dollar index rose to 107.37, indicating the greenback's strength against other major currencies.

RBI Interventions and Reserves

  • RBI intervened in the forex market to manage volatility, with PSU banks participating actively.
  • India's forex reserves increased by $4.7 billion to $640 billion, driven by a rise in foreign currency assets and gold reserves.
  • The rupee appreciated by 0.14% against the dollar for the week ending February 21.
  • Tags :
  • Dollar-Rupee Swap
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